Does an S corporation complicate my accounting or bookkeeping?
Let's face it. If you're in business, you need to have a decent accounting system.
You agree, right? You need an accounting system that calculates the profit or loss you earned or suffered last week, month or year.
And you need an accounting system that accurately tells you how much money you have in your bank accounts, what amounts customers owe, and about the value of the other assets you're holding.
In short, you need these sorts of accounting details not for any legal or tax reason so much as just to be a smart manager and entrepreneur.
S Corporation Status Shouldn't Add Much Complexity
Given the above reality, the extra accounting required because you operate your business as an S corporation should not be at all significant. Yes, an S corporation will need to be able to produce an annual profit and loss statement and, most of the time, a sturdy balance sheet. But these requirements just mean that you need to use a real accounting system like QuickBooks or, in the simplest cases, a program like Quicken.
Let me, however, share a handful of hopefully useful comments about setting up and simplifying an accounting system for your S corporation...
Consider Outsourcing Your Payroll
S corporation status will mean that you need to prepare and process employee payroll. You will have employee payroll even if you, the owner, are the only employee working in the business. Be sure to remember this!
Furthermore, unless you're really comfortable doing the bookkeeping, consider paying one of the big payroll service firms like Gusto Payroll, ADP or Paychex to just "do" your payroll for you. You'll reduce your headaches. You'll avoid penalties.
Yes, payroll accounting is not hard. But payroll is an area of bookkeeping where you can easily create a lot of work for yourself and screw things up. Paying one of the outside service bureaus $500 to $1,000 a year greatly simplifies your bookkeeping.
Use Cash Basis Accounting
Here's another tip...
If you can, use cash basis accounting for your business. Cash basis accounting makes it much easier for you to keep your books. Yes, accrual basis accounting produces more accurate profit or loss numbers. But accrual basis accounting is more complicated.
Better for you to have some reliable, timely cash-basis accounting information than some suspect accrual basis information several days, weeks or months late.
Tip: Ask your tax advisor whether your firm can use cash basis accounting. Most small businesses can.
Get Some QuickBooks Coaching
A final awkward tip...
The truth of the matter is that your tax accountant probably doesn't want to help you run QuickBooks, believe me. He or she has got other stuff to do that clients are probably happy to pay for. And he or she knows QuickBooks handholding is about the lowest-margin service he can sell.
But all that said, he or she also really knows accounting. And he or she can provide you with some hands-on coaching or practical tutoring that will make the work of running your bookkeeping system way, way easier. Therefore, see if you can buy an hour or two of consulting help.
Such coaching can help you avoid the biggest blunders and keep your accounting data relatively clean and usefully accurate.
Additional Information You May Find Useful
If you want additional information about how to maximize the tax savings related to running a business or investment venture, you may also be interested in one of our downloadable e-books (see descriptions below). Each book covers a category of tax planning topics that easily save a business owner significant amounts of income or self-employment taxes (potentially thousands of dollars a year) and is instantly downloadable.
Often the best tax saving tool private companies have? The Section 199A deduction which allows them to avoid taxes on the last 20 percent of their income.Read More
Using an S corporation for your business? To maximize savings, you need to minimize the salary paid to shareholders. But this decision is tricky.Read More
Nearly secret, the federal government's employee retention credits provide tremendous payroll tax savings for most small businesses... A new book from our firm explains.Info here